Swan ditching surplus responsible decision

Updated
December 21, 2012 08:51:00

Maintaining a surplus was been a key plank of Labor's budget strategy for more than two and a half years. The acting Prime Minister argues the release of updated financial statements had showed that Government revenue had taken a 'sledgehammer hit' with tax receipts for the first third of the financial year down by nearly 4 billion dollars.

TONY EASTLEY: In ditching the surplus commitment yesterday the Treasurer Wayne Swan argued that he didn't care about the political outcomes, despite the pledge being a key plank of Labor's budget strategy for more than two and a half years.

The acting Prime Minister Wayne Swan is in our Brisbane studio and he's speaking to our chief political correspondent Sabra Lane in Canberra.

SABRA LANE: Mr Swan, good morning and welcome to AM.

WAYNE SWAN: Good morning Sabra.

SABRA LANE: Mr Swan, back in 2010 you said come hell or high water you'd deliver a surplus this financial year. Will this be as damaging for you as the broken promise on the carbon tax?

WAYNE SWAN: Well, I think if the worst that is said is that we got the big economic decision right here then I'll let the politics work its way through the system. It's not my concern. What my concern is ...

SABRA LANE: But for a long time you argued that this was an economic imperative.

WAYNE SWAN: Yes, and we are still making a very significant fiscal consolidation. and we are implementing particularly on the expenditure side of our budget a fair degree of expenditure discipline so we are still moving in that direction.

But what we've had here is a huge revenue whack if you like, out of the blue, which has made it very hard to get to surplus in 2012/13. And if we were to get the surplus in 2012/13, we'd have to take cuts to the budget which would impact on jobs and growth and as a Labor government our first priority is always jobs and growth.

So when we saw the hard data come in in terms of the revenue figures, then we made a thorough assessment of that and I made my announcement yesterday, up front, to the Australian people, outlining why the circumstances had changed.

SABRA LANE: Last Friday on this program the Prime Minister dismissed suggestions of ditching the surplus promise by saying, "We don't jump at people's figments of imagination here, we deal with the facts, we deal with the forecasts".

WAYNE SWAN: That's right.

SABRA LANE: What's changed in a week?

WAYNE SWAN: Well, what has changed is the revenue numbers that have come to us from the tax office.

And we have been working our way through that data and our conclusion is that we lost in four months the equivalent of what we'd written down at the mid-year update for the whole year. So that was a huge whack to revenue.

And we had a look at what we'd seen in the national accounts in terms of nominal GDP growth and we formed the conclusion that what we must do as a Labor Government is put growth and jobs first. And that's what we've done and we've been entirely upfront about that.

But when it comes to the future, we'll make a thorough assessment of all of the facts in the new year. We'll see what occurs in terms of the fiscal cliff negotiations in the United States. We'll see how the global economy pans out over the early part of next year and make a thorough assessment of where we are. That's the responsible thing to do.

This Government has got a history of getting the big economic calls right. We got the big economic calls right at the height of the global financial crisis and the global recession and I believe we've got this economic call right as well.

SABRA LANE: Doesn't this come down to an issue of trust as well? The Opposition says more than 200 times you and the Prime Minister have given commitments to return the budget to surplus this financial year. Why should voters trust you given that this has been a central plank of your economic policy?

WAYNE SWAN: Well because, because Sabra, the data, the revenue figures changed and the only responsible thing to do in those circumstances is to evaluate where it leaves us for the future.

Now let's just view this in the wider context. We've got unemployment at 5.2, we've still got growth around trend. We've got a strong investment pipeline, we've got contained inflation and we've had interest rate cuts.

Our judgement was in those circumstances that to cut harder in 2012/13, to do it right now, would impact on growth and jobs. But we've still got our medium term fiscal strategy in place because the most important thing for us is to get those big economic calls right.

And from time to time, just like it was in 2008 and 2009, global conditions changed. And what has changed here has been a big cut or drop in commodity prices while the dollar has remained elevated and that had a huge impact on revenue in the September quarter.

SABRA LANE: When was the decision made by Cabinet to ditch the surplus promise?

WAYNE SWAN: Well I had discussions with the Prime Minister about this before she went on leave. I discussed it with a number of other colleagues and I made the announcement yesterday.

SABRA LANE: But when was the decision made?

WAYNE SWAN: Well I talked to the Prime Minister and my Cabinet colleagues. I don't go through all of those details. I did that in the last week or so.

SABRA LANE: When will you able to say what the size of the deficit will be?

WAYNE SWAN: Well as I said we will make a reassessment of where we are, going through all of the facts, do it methodically in the new year. As I explained to you before we've got to see what is occurring in the global economy.

This revenue write-down is mainly attributed to conditions in the global economy which have led to a very high dollar and which caused a crash in commodity prices in the last few months. I believe they are coming back a little now but the fact is we need to watch the data as it comes through and we need to take informed decisions based on the facts.

SABRA LANE: There are calls now for you to restore the cut of $375 million in foreign aid funding. Will you do that?

WAYNE SWAN: Well I don't accept that Sabra. Well, there hasn't been a cut in foreign aid.

SABRA LANE: Well, there are calls.

WAYNE SWAN: Well, there may be calls but there haven't been any cuts in foreign aid. We've got a record foreign aid...

SABRA LANE: Well you've diverted to onshore processing and that surely is a diversion by anyone's language.

WAYNE SWAN: Well, it's a very legitimate use of foreign aid and it is within the guidelines and it's a practice followed by many countries.

We've got a record aid budget which has increased by 71 per cent during the five years we've been in office. I'm very proud of our aid budget and I'm very proud of what we've done with it over a long period of time. There will always be decisions that are taken about priorities within that overall envelope.

SABRA LANE: Given that tax receipts are down in such a significant way and Australia hasn't recovered to pre-GFC levels, how can Australia afford a multibillion dollar program like the Gonski education reforms and the National Disability Insurance Scheme?

WAYNE SWAN: Well Sabra one of the things I'm most proud of is our economy is 13 per cent larger than it was in 2007. Australia has recovered from the global financial crisis.

SABRA LANE: But tax receipts haven't; that's why you're in the problems that you are right now.

WAYNE SWAN: That's right and, yes, that's right and you shouldn't be confusing what the Government will do to fund new priorities, which are very important for the future economic development of the country and also for our society, such as an NDIS, the National Disability Insurance Scheme and the Gonski school improvement programs.

We will do there what we have done in the past, over the past five years. We will make room in our budget, we will change priorities so those expenditure priorities are put to the fore. And we'll do that within the context of strict expenditure control, the type of expenditure control we've had in place over the last few years.